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THE NEW YORK TIMES: Deutsche Bank Fined for Market Misconduct

Deutsche Bank Fined for Market Misconduct

Published: April 11, 2006

Filed at 12:31 p.m. ET

LONDON (AP) — Britain's Financial Services Authority on Tuesday fined Deutsche Bank AG 6.4 million British pounds ($11.2 million) for market misconduct, the third largest penalty the watchdog has ever imposed.

The fine relates to two improper transactions by Deutsche Bank, Germany's largest commercial bank, in March 2004 involving shares of Swedish truck maker Scania AB and of Swiss biotechnology firm Cytos Biotechnology AG.

The regulator also ordered Deutsche Bank's former head of European cash trading, David Maslen, pay a 350,000 British pound ($611,000) penalty over the transactions.

''Deutsche's failure is an example of the type of conduct which the FSA will act against in its efforts to improve the overall quality of markets,'' said Hector Sants, FSA Managing Director for Wholesale Business.

Deutsche Bank, which posted a net profit of 3.5 billion euros in 2005, cannot appeal the fine and has two weeks to pay up.

The bank said Tuesday that it regretted ''the failure to adhere to the high standards that it expects of its staff,'' but stressed that the two transactions took place more than two years ago and were isolated incidents.

The only two larger penalties imposed by the FSA were a 17 million British pound fine slapped on Royal Dutch Shell PLC in August 2004 for market abuse after the oil firm overstated its reserves and a 13.9 million British pound penalty on Citigroup Inc. in June 2005 for breaching standard behavior on bond trades. The FSA said Deutsche Bank acted improperly on March 4, 2004, when it agreed to buy 63.7 million Scania B shares from Swedish carmaker Volvo AB for 1.1 billion British pounds and sell them by an accelerated book-build, the process of working out a price by assessing demand from customer orders.

The FSA said that the bank carried out large proprietary trading of Scania shares at ''a sensitive time during the book-build,'' which wasn't transparent to the market and contributed to ''material changes'' in Scania B's share price.

The bank compounded the error a day later by notifying ''certain customers'' of its holding in Scania B shares prior to notifying the Swedish stock exchange, the FSA said.

The second transaction penalized by the FSA involved trades aimed at stabilizing shares in Cytos on March 25, 2004. The FSA said the bank failed to ensure that its Zurich-based trader conducted the trades in accordance with internal procedures, and other staff involved ''failed to escalate the trade in a timely fashion.''

In its statement, Deutsche Bank said it carried out an internal review in 2004, which led to disciplinary action and further strengthened a number of procedures.

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